DuPont Building Up Biotech: Purchase of Danisco moves company deeper into new era
The News Journal, Written By: Jonathan Starkey, May 21, 2011
Wilmington's DuPont Co. doubled down on biotechnology last week, completing its $6.4 billion bid for Danish enzymes firm Danisco and beginning the process of combining the two companies.
With the Danisco purchase, DuPont moves yet further away from its storied history in explosives and commodity chemicals and further into what may be considered a third era for the 209-year-old Delaware company -- this one defined by biotechnology.
DuPont is already a force in agricultural biotech through its ownership of Pioneer Hi-Bred International, a $5.3 billion Iowa firm that sells genetically altered soybean seeds. DuPont purchased Pioneer for $7.7 billion in 1999, in its last major acquisition.
Architects of the Danisco deal say the addition of the Copenhagen-based company makes DuPont a major player in industrial biotechnology and will bolster efforts to produce materials from renewable sources like corn starch and soy. Danisco, which makes food ingredients and additives, also markedly strengthens DuPont's food business. Its addition will create a standalone $3 billion nutrition and health segment.
"We would call this a strategic acquisition," said Craig F. Binetti, a DuPont president who will lead the newly created nutrition and health business. "It's positioning the company in a very high science and technology orientation geared to what I would call major trends ... increasing food production, reducing dependency on fossil fuels."
DuPont completed its purchase of Danisco after a five-month-long public negotiation with holdout shareholders. According to company statements in January, when DuPont launched its bid, the deal will be financed with debt plus $3 billion in existing cash. DuPont expects it could cost 45 cents per share in 2011 earnings but add to earnings by next year.
Jefferies & Co. analyst Laurence Alexander, who follows DuPont, expects Danisco to add 20 cents per share in 2012. Alexander said the DuPont purchase values the company at $6.89 billion. Alexander expects integration "should run fairly well due to the close partnerships over the past decade." The companies currently partner on a project to produce ethanol from corn cobs and switchgrass.
DuPont's new nutrition and health segment will bring together DuPont's soy protein joint venture Solae and food safety technology from the business Qualicon with Danisco's ingredients business. Danisco produces additives and ingredients for makers of juice, wine and dairy products, including sweeteners for ice cream and cultures that add flavor and texture to cheese.
DuPont will also combine Danisco's California-based enzymes subsidiary Genencor with its applied bioscience unit to create a new $1 billion industrial bioscience segment.
DuPont leaders hope that Danisco's enzymes -- catalysts used to convert biomass into fuel sources and biochemicals -- will enable DuPont to boost efforts to produce renewably sourced materials, like the company's plant-based textile Sorona, which is used in carpet and clothing. Makers of detergent also use Genencor enzymes to improve performance, and biofuels companies turn to the enzymes to quicken fermentation, boost yields and save on input costs.
"These new catalysts help us achieve things that we can't today," said James C. Collins Jr., who has led DuPont's integration team for the past several months. Collins will serve as president of the industrial bioscience segment. "We're also excited about what Genencor brings from an R&D capability."
Collins said there is "very little overlap" between the companies, though DuPont could save by eliminating some administrative overlaps, he acknowledged. DuPont would not offer details yet on whether that would impact jobs locally.
J. Michael Bowman, president of the Delaware Technology Park in Newark and a former DuPont executive, said he witnessed DuPont's biotech transformation in progress as early as the late 1980s.
"Over a 10-year period," Bowman said, former DuPont Chief Executive Charles O. Holliday Jr. "began to turn the dial toward life science, biotech-type play." Bowman retired in 1998 from DuPont, where he served as vice president and general manager of DuPont's advanced materials and systems unit. "It was very deliberate and carefully strategized."
Change, of course, is not unusual for DuPont, which was founded as a gunpowder company near Wilmington in 1802. Its powder was used by the U.S. government in the War of 1812 and World War I.
Over the course of the 20th century, DuPont became one of the world's largest chemical companies, cashing in on high-profile inventions like nylon and Kevlar, a fiber used in bulletproof vests.
The company still makes money on chemicals. It's the global market leader, for example, in the production of the white titanium dioxide pigment, which is used in car paint. Supplying materials to makers of solar panels has become a $1 billion business for DuPont, and its electronics division also produces display components for smartphones, televisions and computer monitors.
But biotech has been commanding greater focus.
DuPont's agriculture and nutrition segment, which includes Pioneer, reported 2010 sales of $9.1 billion, nearly 30 percent of DuPont's total global sales of $31.5 billion last year. The business, which also includes crop protection products and the food safety products from Qualicon, commanded 61 percent of the company's $1.7 billion in research and development spending last year.
Danisco, to be sure, will increase DuPont's focus on biotech research. On a strategic level, observers and company insiders say the acquisition speaks to the company's strategy of creating products that help meet the needs of a swelling global population -- biotech agricultural seeds that increase crop yields, for example, or pastes that help solar cells more efficiently absorb sunlight.
"They're making really a long-term commitment toward sustainability as a company in a world with constrained resources," said David Hounshell, a Carnegie Mellon professor who has studied DuPont, and co-authored a book in 1988 about the company's R&D strategy.
DuPont was already moving research dollars from oil-based products to biotechnology by the mid-1980s. Its Pioneer purchase marked a major shift and began to define DuPont as a biotech giant. DuPont had taken a 20 percent stake in Pioneer in 1997.
"That was a time period when we were looking at how we participate in the global food supply needs," said William F. Kirk, who was vice president of DuPont's agriculture business in 1999 and courted Pioneer. Kirk said Danisco helps make DuPont a "very strong company" and said he sent a congratulatory note to Ellen Kullman, DuPont's current chief executive. "You can get synergies and create new opportunities as you have technologies in various sectors of the food chain," Kirk said.
Like Kirk, Bowman praised the Danisco acquisition, saying it was a natural extension of DuPont's biotech transformation.
"Danisco has several business units that have become very very important in DuPont's profile," Bowman said. "I think it's one of the smartest value deals I've seen out there. The price and the fit."